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Lost and Found: New Program Helps Workers Reclaim 401(k) Funds

Amid concerns that workers aren’t saving enough for
retirement, a new government program holds out the prospect of reuniting
workers with forgotten funds in 401(k) plans that employers shut down.

Under the program
announced by the Pension Benefit Guaranty Corporation in December, any 401(k)
or other defined contribution plan that terminates on after Jan. 1, 2018, has
the option to deposit plan assets with the PBGC. Once the money is deposited,
the PBGC will add the account owners’ names to an online searchable directory
and will also periodically search for those people.

When the PBGC finds missing participants through the
program, it will pay them benefits plus interest. The agency estimates that this could amount
to an additional $19 million in recovered benefits each year.

When a defined contribution plan closes, the money of
missing participants is typically deposited in an individual retirement account
administered by a bank and could eventually escheat to the state.

Historically, the PBGC has only sought to protect
participants in traditional defined benefit pension plans, while largely
steering clear of involvement with defined contribution plans.

“The fact that the PBGC is doing this is a significant
positive and should have been done years ago,” Sanford Rich, executive director
of the New York City Board of Education Retirement System, told Bloomberg Law.

Rich had a ground-floor view of the emerging missing
participants program while serving as chief of negotiations and restructuring
at the PBGC from 2012 until 2016.

He sees the program as a win-win for plan sponsors and
missing participants. “Having these accounts sit idle at the plan sponsor is
costly to maintain, while surrendering the monies to a bank for safekeeping
runs the risk that the bank’s fees for handling the account will deteriorate
the balances,” he said.

Transferring Plans
Must Go All-In

A terminating defined contribution plan can participate in
the program either as a “transferring” or a “notifying” plan. A transferring
plan is one that sends benefit amounts of missing participants to the PBGC,
while a notifying plan simply informs the PBGC of how it is disposing of missing
participants’ assets.

A “transferring plan” cannot cherry-pick which accounts it
sends to the PBGC. Rather, it must deposit all accounts of missing participants
with the agency. The agency said this is to avoid a situation in which “larger
accounts that can generate larger maintenance fees for commercial individual
retirement plan providers might be turned over to private-sector institutions
that charge asset-based fees.”

When Is Someone
‘Missing?’

Under the program, someone who has unclaimed plan funds is “missing”
when the plan doesn’t know with reasonable certainty the location of the
participant; the participant hasn’t elected a form of distribution in response
to a distribution notice; or the participant refuses to accept a lump-sum distribution
from the plan. The same would hold true for beneficiaries who become entitled
to the assets in a missing participant’s account

Lump-sum cash distributions fall in the category of “not
accepted” if checks remain uncashed for a certain amount of time. For example,
this would apply when a “cash-by date” of at least 45 days has expired.

Cost to Plans

In general, terminating plans in the program will be charged
a one-time $35 fee per missing plan participant or beneficiary, payable when
the plans transfer benefits to the PBGC.

However, the PBGC won’t charge a fee for amounts transferred
of $250 or less. Plans also will not be charged a fee for simply sending PBGC
information about where benefits are held.
The PBGC also will not charge plans a continuing account maintenance fee
or a distribution fee.

Prior to depositing missing participants’ accounts with the
PBGC, the plan must search for each participant whose location it doesn’t know
with reasonable certainty.

“Terminated plans can’t simply surrender the accounts to the
PBGC without first trying to search for the account owners,” Rich said. “Labor
Department regulations outline what a plan sponsor must do to find participants
who have walked away from their account balances or had benefit checks
returned. These are pretty significant, explicit minimum search requirements,”
he said.

The search must be conducted within nine months before the
plan alerts the PBGC that a participant is missing, according to the rule.

Don’t Leave It to the
Government

Apart from the required searches, plan sponsors and missing
participants should avail themselves of publicly available listings of abandoned
assets, according to Rich. Among
organizations that help consumers find missing assets is missingmoney.com, which is administered by
the National Association of Unclaimed Property Administrators.

While missingmoney.com is not a complete listing of
abandoned money, because some states do not participate in this centralized
repository of escheated assets, the missingmoney website has a list of related
links that includes the PBGC Missing Participants Program, as well as listings
maintained by the FDIC and the IRS, among others.

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